Child poverty and the Child Tax
Credit
62. The 2000 Spending Review included a target to
"Make substantial progress towards eradicating child poverty
by reducing the number of children in poverty by at least a quarter
by 2004".[176]
The Pre-Budget Report announced that the 'child element' of the
Child Tax Credit "will increase from April 2004 by £180
to £1,625 a year, equivalent to a weekly increase of £3.50".[177]
This measure will increase support to families with children by
almost £1 billion each year.[178]
The IFS has previously noted that "for a given level of expenditure,
increasing the per-child element of the child tax credit will
have a larger direct impact on poverty than increasing the family
element or increasing child benefit".[179]
Mr Chote told us that it was "quite possible that the Chancellor
is going to hit the [child] poverty target on the basis of this
increase";[180]
he added that there was some concern that "having a target
that is so clearly fixed as a target of relative income"
could create "an excessive bias towards trying to deal with
child poverty through direct cash transfers, when it might well
be more appropriate to take some money and devote it to services
like
Sure Start". The Chancellor told us that "by
raising the 'per child' element we were able to do more about
the position of lower and middle income families" and that,
by 2004, "Before housing costs there is absolutely no doubt
in our view that we [will] meet the 25 per cent cut in [child]
poverty since we set the target"[181].
The Chancellor also noted that in addition to the increased tax
credit the Budget had announced "a new scheme to help lone
parents get into work".[182]
We welcome the Government's action to reduce child poverty
and note the substantial progress made so far. The approach needs
to establish an effective balance between providing income to
the parents through the tax credit system with expenditure on
services aimed at increasing opportunity for both the parent and
the child.
Savings
63. The savings ratio for the United Kingdom is low,
particularly for people on low incomes, and hence Government policy
has been to encourage people to save. In that context cash ISAs
have proved popular with low income earners, as the Nationwide
Building Society and Halifax Bank of Scotland testify. To reduce
cash ISAs from £3000 to £1000 per year, and share ISAs
from £7000 to £5000, appears to run counter to a policy
of encouraging people to save. We, therefore, request an explanation
for this apparent contradiction in policy and recommend that the
proposed ISA reductions should be reconsidered.
158 HC Deb , 9 June 2003, col 411 Back
159
Review of Housing Supply, Kate Barker, HM Treasury December 2003;
the UK Mortgage Market: Taking a Longer-Term View, David Miles,
HM Treasury December 2003 Back
160
Ev 58 para 9 Back
161
Q 79 Back
162
Qq 392-383 Back
163
RICS press release, House prices to rise 6% in 2004, 23 December
2003 Back
164
Bank of England, Inflation Report Press Conference, 12 November
2003 Back
165
Council of Mortgage Lenders Back
166
The UK Mortgage Market: Taking a Longer-Term View, David Miles,
HM Treasury December 2003, p 2 Back
167
The UK Mortgage Market: Taking a Longer-Term View, David Miles,
HM Treasury December 2003, Table 4.3, p 56 Back
168
HM Treasury, Simplifying the taxation of pensions: the Government's
proposals, 10December 2003 Back
169
Financial Times, Investing freedom for funds, December
13 2003 Back
170
Q 381 Back
171
Ev 72 Back
172
Q 68 Back
173
Pre-Budget Report 2003, para 5.91, p 117 Back
174
Ev 76 Back
175
Ev 72 Back
176
HM Treasury PSA target 8 (joint target with Department for Work
and Pensions) Back
177
Pre-Budget Report 2003, para 5.19, p 98 Back
178
The actual costs given in the PBR Table B4 are £885 million
in 2004-05, 925 million in 2005-06 and £955 million in 2006-07 Back
179
What do child poverty targets mean for the child tax credit?
An update, Mike Brewer, IFS, December 2003 Back
180
Q 87 Back
181
Qq 341-342 Back
182
Q 374 Back